Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources

Issue 45 - Evidence - May 23, 2013


OTTAWA, Thursday, May 23, 2013

The Standing Senate Committee on Energy, the Environment and Natural Resources met this day, at 8:03 a.m., to study the current state of the safety elements of the bulk transport of hydrocarbon products in Canada.

Senator Richard Neufeld (Chair) in the chair.

[English]

The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.

My name is Richard Neufeld. I represent the Province of British Columbia, and I am chair of this committee. I would like to welcome honourable senators, any members of the public with us in the room and viewers from across the country who are watching on television.

I now ask the senators to introduce themselves, and I will start by introducing the senator to my right, Senator Grant Mitchell from Alberta. Senator Lang?

Senator Lang: Senator Lang, Yukon.

Senator Massicotte: Paul Massicotte, Montreal.

Senator Wallace: John Wallace, New Brunswick.

Senator Seidman: Judith Seidman from Montreal, Quebec.

Senator Unger: Betty Unger, Edmonton, Alberta.

Senator Patterson: Dennis Patterson, Nunavut.

Senator Ringuette: I am staying quiet with my cold.

The Chair: Senator Ringuette, from New Brunswick.

I would also like to introduce our staff: the clerk, Lynn Gordon; and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.

On November 28, 2012 our committee was authorized by the Senate to initiate a study on the safe transportation of hydrocarbons in Canada. The study will examine and compare domestic and international regulatory regime standards and best practices relating to the safe transport of hydrocarbons by transmission pipeline, marine tanker vessels and railcars.

Our committee has held 11 meetings on the study to date. We have also travelled to Calgary for fact finding meetings and made site visits to Sarnia and Hamilton, Ontario.

Today, I am pleased to welcome, in the first segment of our meeting, from the Canadian National Railway Company, joining us by video conference from Montreal, Michael Farkouh, Vice-President, Safety and Sustainability; and Sam Berrada, General Manager, Safety and Regulatory Affairs.

Mr. Berrada, I think we first met when we were in Calgary, so I look forward to our conversations today.

I do not know which one of you is delivering the presentation, but please proceed. Afterwards we will take questions and answers.

Michael Farkouh, Vice-President, Safety and Sustainability, Canadian National Railway Company: Thank you very much, and good morning. Mr. Chair and honourable senators, we appreciate this opportunity to review CN's safety initiatives and progress made over the past few years to strengthen its Safety Management System and safety culture.

Since the inception of the Safety Management System regulations more than a decade ago, CN has embraced this opportunity not only to meet regulatory requirements but also to exceed them in many areas with the conviction that everything that we do to strengthen safety will make us more successful as a business and help us deliver on our responsibilities to our customers, employees, and the public.

We will take about 15 minutes to highlight key areas of the presentation that was delivered to some members of your committee on March 6 of this year.

Material that we have provided shows that much effort has been made to improve safety and sustainability, with a number of positive results, including safety performance and external recognition. Yet, we understand that much work remains ahead of us because safety is a work-in-progress, where every accident or injury is one too many.

Following the review of this material, we will be pleased to answer questions in the 45 minutes allotted to us.

I direct your attention to slides 2, 3 and 4, which highlight CN's important role in supporting the economy.

With a network that spans Canada from the Atlantic to the Pacific Oceans and the south through the central United States to the Gulf of Mexico, CN is a backbone of the economy, which supports both internal growth and exports and imports.

As noted on slide 3, of particular interest is CN's operation at the Port of Prince Rupert, which offers a shorter and more efficient route to and from Asia, providing a competitive advantage that benefits exporters and importers.

CN serves a diverse group of customers in the categories of bulk commodities, intermodal, general merchandise and petroleum and chemicals. Our focus on supply chain collaboration has allowed us to improve service and to support our customers in growing their business.

To further exemplify the magnitude of CN's contribution to the economy, CN's 23,000 employees move products valued at $250 billion on an annual basis, and its capital investments exceeded $8 billion over the past five years. We will spend nearly $2 billion this calendar year.

I draw your attention to slides 5, 6, 7 and 8. These provide an overview of the regulatory framework in Canada and the U.S.

CN's safety programs are designed to meet and exceed regulatory requirements on both sides of the border. There are many examples of initiatives and investments that far exceed regulatory requirements because we consider regulations to be a minimum requirement and we embrace Safety Management System regulations which, in effect, add to regulations by providing a framework for railways to develop and manage their safety programs to exceed the base requirements. This is consistent with market forces that drive continuous improvement because there is a vested interest for companies to operate safely. This is certainly our conviction at CN because we recognize that our investments in safety will help us to better serve our customers with consistency and efficiency.

Examples of where we have decided to far exceed regulatory requirements for the inspection of our track and equipment are — and I draw your attention to slide 7 — ultrasonic rail flaw detection that identifies internal defects in rails that visual inspection cannot find. We inspect our main track up to 18 times per year, whereas regulations require no more than four times. We do this because broken rails cause service disruptions and derailments that can be very costly. Our analysis has concluded that it is in our interest to exceed regulations, so we have made this part of our Safety Management System.

Another example is track geometry testing, which is performed with mechanized vehicles that inspect track for geometric imperfections. Again based on our analysis, we decided to test some of our main track up to seven times a year, whereas regulations require only three times. As well, CN has been a leader in wayside inspection systems that detect defective mechanical components such as wheels and bearings. CN has the densest and most advanced network in North America, which greatly exceeds regulatory requirements.

There are numerous other systems where CN has decided that it is the right thing to do to invest in safety, even if regulations do not require it, because we are convinced that safe operation is an enabler for performance and success.

Slides 9 to 13 provide an overview of CN's comprehensive approach to manage safety with initiatives encompassing people, process, technology and investments. The first pillar deals with people, where we have a number of initiatives to strengthen employee skills and culture. These initiatives have been developed in a partnership with our labour organizations and employees, including our policy health and safety committee, which consists of senior members from both labour and management.

To the best of our knowledge, CN is the first railway in North America to measure safety culture systematically and consistently with the approach that was developed with working groups involving unions, railways and the regulator. This approach is featured in Transport Canada's website. CN's efforts in measuring and strengthening safety culture have been recognized by the Railway Association of Canada as well as by Transport Canada.

Back to the broader topic of people, on slide 9, a key initiative that we would like to highlight is CN's training excellence, which delivers modern and effective training at a critical juncture of our demographics when half of our work force will be renewed over the next five- to seven-year period.

A few years ago the aging of our work force and the looming spike in retirements were recognized as an opportunity to shape our future by designing and delivering a training program that would provide knowledge, field skills and confidence so that a new generation of railroaders would be well equipped and motivated to serve our customers effectively and passionately. This in turn would deliver an entire generation of railroaders that will help our customers succeed. This initiative has progressed with employee involvement in CN's policy, health and safety committee, as well as employee focus groups that have helped shape this program by raising the bar on training effectiveness.

As an example, we have learned technology by using iPads in our conductor training classes to increase simulations and raise the level of interactivity to augment training effectiveness and to better connect with our new generation of railroaders. We are also making a major investment in new training facilities that will be centralized in Winnipeg and Chicago, with the aim to build state-of-the-art facilities that will support quality training programs that are both effective and consistent.

With respect to safety culture, we recognized at the time of the Railway Safety Act review in 2007 that this was a huge opportunity to increase employee engagement and take safety to the next level. We embraced this initiative by working closely with Transport Canada, railways, the unions and working groups that defined safety culture and identified initiatives that are characteristic of a strong safety culture. We developed and implemented a process to measure and strengthen safety culture, which as we said earlier became an industry standard and received recognition.

We are not stopping here because over the past two years we have been working closely with Saint Mary's University, which is a source of external expertise in safety culture and safety leadership. This is to help us sustain our safety culture progress. We are now working with this university to implement a near-miss hotline to better understand and address human factors and issues with a view to preventing accidents and incidents.

Moving on to slides 11, 12 and 13, they provide many examples where CN has been leveraging technology to improve safety because this represents another line of defence that goes beyond what visual or physical inspections can find.

We covered some examples earlier, and in the interest of time we will not cover any more. We have provided a summary of these technologies in annex 2 of our presentation, where you will note that most of these technologies far exceed regulatory requirements, and in many cases there are simply no regulations that require such technologies.

These self-directed investments that go beyond regulations demonstrate that Safety Management System regulations are effective, and bring direct benefits to rail safety, because they provide a framework for railways to achieve continuous improvement. This is consistent with their vested interest in operating safely because of the direct benefits and success that safety generates.

Moving to slide 14, this shows that these initiatives and investments have made a difference with CN's Transportation Safety Board main track accidents. They have improved 66 per cent over seven years in spite of volume growth of about 30 per cent in this time frame. On a normalized basis, the improvement would be even greater. We see a similar picture for injuries that have improved almost 50 per cent in the same time frame on the strengths of our efforts to strengthen safety culture.

Slide 15 shows that significant improvements have also been made in reducing crossing and trespasser accidents. These graphs show that much progress has been made, yet we realize that much remains ahead because every accident and injury is one too many.

Moving on to slide 16, this brings us to the transportation of crude oil by rail, where we can see many reasons while rail delivers on its role as a backbone of the economy.

It is important to remember that CN has been transporting refined oil products such as diesel and aviation fuel safely for many decades. Going forward, a key point is that rail complements pipeline safety and provides an alternative for producers because the rail network has an infrastructure with more reach than pipeline. It often enables producers to get better prices for their product.

As well, rail is more nimble and adaptable because it allows for rapid change, responding to different scales or volumes to match dynamic market conditions. This flexibility ensures there will be a role for rail in transporting crude, regardless of future pipeline construction.

This flexibility provides value to shippers and the economy. Otherwise, the market forces of supply and demand would not reach equilibrium because structural barriers hinder balance and efficient transportation is essential for efficient markets.

The other point is that rail delivers crude oil with a very high level of safety that is risk equivalent to pipeline. There are various studies that have compared rail to pipeline, and unfortunately most of these use different criteria, so the end result is that they do not get an apples-to-apples comparison. However, there are analyses that have reconciled these studies and concluded that both rail and pipeline have very high levels of safety, with risk that is very low and nearly equivalent.

Moving on to slides 17, 18, and 19, they provide an overview of CN's emergency response capability, which is second to none. The previous slide shows that CN leaves no stone unturned in reducing the risk of derailments. However, in the event that a derailment occurs we are fully prepared to respond effectively with an emergency response plan that was enhanced three times over the past five years, is based on best practices and is anchored with training and documentation. It is also noteworthy that we have been working closely with federal and provincial environment agencies to identify and map sensitive areas along our rail corridor with the objective to enhance response capability.

We have also been active with outreach initiatives, which aim to augment knowledge, awareness and engagement of our key stakeholders. Examples include regular meetings with communities and elected officials along the right-of-way, involvement with the Federation of Canadian Municipalities and provincial and municipal organizations in raising awareness through communications and presentations during Rail Safety Week.

As well, CN, police and dangerous goods groups interface with the public and municipalities. Our dangerous goods officers provide training sessions to municipal emergency responders, who get training on a dedicated tank car designed for this purpose. As well, our CN police officers are active with schools, vehicular traffic and pedestrians in crossings and public areas, to raise knowledge and awareness of rail safety.

In terms of external recognition, it is encouraging to see that all these efforts are being recognized by external parties, as we see a listing on slide number 20.

In conclusion, we have provided a brief overview of CN's significant investments and resources that are being allocated to protect and enhance safety and sustainability because of our conviction that nothing is more important to CN than operating in a safe and sustainable manner.

We recognize that both safety and safety culture are a work-in-progress because we are continuously looking for opportunities to improve and because we can never be fully satisfied until we eliminate accidents, injuries and incidents.

CN is a backbone of the economy that provides efficient and safe transportation to markets for a large number of products, including crude oil, thereby supporting market forces that drive economic growth and efficiency. Much has been done, but we recognize that much remains ahead of us and we are committed to this journey for the long haul.

We once again thank you for this opportunity and we welcome questions at this time.

The Chair: I do not usually do this, but I will start off with a couple of questions.

Earlier in your presentation you talked about safety and some of the things that CN does that other class 1 railroads do not do. You do more inspections than are required on your rail lines and I commend you for that. Actually, I believe it has reduced your accidents and those kinds of things. Obviously, an accident costs money so you do not have that on your bottom line.

Would you say that perhaps a recommendation to Transport Canada would be to increase the inspections that are required? It seems to have proven to be very good, not only for the railroad but for the safety of the public across Canada. Would that be something that you would support?

Sam Berrada, General Manager, Safety and Regulatory Affairs, Canadian National Railway Company: Mr. Chair, with respect to your question about increasing inspections, our presentation mentions that the SMS regulations provide a framework for railroads to go beyond regulations and one of those areas is inspections. This has been demonstrated with the increase that we have made over the past few years. Examples are rail inspection, track geometry inspections and investments that we make.

A short answer to your question is that the SMS regulations provide the framework that enables railroads to go beyond what regulations require. This has been demonstrated to be effective on the strength of the safety performance as well as the numbers of inspections that are done. In relation to whether Transport Canada should be doing more inspections within the framework of the Safety Management System regulations, we can say that the process works. There is no further requirement for Transport Canada to do any more than what they currently do. However, they have been very active on the Safety Management System auditing on a risk-based approach. That in itself drives the focus at the railway level and supports the improvements by increasing inspections and making improvements in safety performance.

Mr. Farkouh: One of the key elements is the fact that on the Safety Management System there is an element with regard to establishing risk assessments. That is how we have derived the frequency of inspections on a risk basis in terms of certain segments on the railroad that require more attention because of the nature of traffic we run there or the frequency and tonnage of traffic. It is a risk-based approach we have taken, whereby the SMS regulations allow us to take that approach. It has been very successful for us and that is where we allow ourselves to go beyond the regulations.

The Chair: Thank you.

How do our inspections compare to the U.S.?

Mr. Berrada: In terms of inspections and technologies, the class 1 railroads use similar technologies with often the same suppliers. For example, Holland provides support for track inspections. There are other suppliers as well. One of the things that our presentation mentions is that our wayside inspection network is the densest in North America and has continued to improve and increase over the last several years. It is not only about getting more data, but it is about using the data on a preventive basis by establishing thresholds below the limits that would make the levels critical.

From a wayside inspection perspective, it would be fair to say that CN's network is the most advanced and the densest in North America. From a rail inspection network, I would like to say that we are among the highest if not the highest, but we would have to validate those numbers to confirm them to you.

The Chair: Thank you.

You have rightfully stated that you do not need a diluent condensate to ship bitumen, and that is if you are going to refineries. If you were to take it to the West Coast or the East Coast for shipment to Asia or Europe, for instance, would that then require a diluent because of it going on a ship across the ocean as compared to from a site in the Bakken to a refinery on the U.S. Gulf Coast?

Mr. Berrada: Generally speaking, the movement of bitumen in rail cars does not require diluent. There is a process by which some of these products are heated and they retain a low enough viscosity. We talked earlier in the last meeting we had in March about the fact that when you have so much mass of product in a rail car it remains in a heated state for several days.

With respect to the need for diluent in rail cars, the answer is in the great majority of cases you would not need any, whereas in pipe you would in many instances. That would be sufficient to take it right through to the trans-shipping that would be required.

The Chair: Do I get from that answer that you need a diluent if you are going to transport by pipeline to a port and ship trans-ocean, and by rail it is not required? Is that what you are saying or am I misunderstanding you?

Mr. Berrada: That is the understanding that I have, but we can certainly confirm that for you with the right level of expertise.

The Chair: If you would do that, I would appreciate it.

Senator Mitchell: Thank you, gentlemen. I think we are all very interested in the culture-of-safety concept. It is something that came up early in our hearings and was, I think, mentioned perhaps first by the National Energy Board. I would like to explore that a little bit more.

Could you give us some indication of what mechanisms you use to assess or audit a culture of safety? Second, I know the National Energy Board has some interest in this and has suggested at some point they might make it a regulated, structured part of their audit of companies.

Could you give us an update on how you feel about that and whether, from your understanding, that is anywhere close to occurring?

Mr. Berrada: Certainly. The audit approach we have taken is completely aligned with the definition of safety culture that was developed with work groups, including industry unions as well as the regulator. It is on the Transport Canada website right now. We audit safety culture, both objectively as well as subjectively. Objectively would consist of looking for objective evidence and documentation, such as how many risk assessments were done, the level of involvement of health and safety committees.

The subjective assessment would be done through perception surveys of employees. We have done those on a system-wide basis, as well as on a local basis in our divisions. There are a number of initiatives that we use to strengthen the five dimensions that make up safety culture and characterize a company with a strong safety culture. They are along the lines of the leadership, communication, employee engagement, learning culture, as well as a just culture. One example is our training excellence initiative. Other examples would include our audit processes, our communication and engagement initiatives with employees, such as our peer-to-peer safety programs.

Certainly we would be favourable to having this type of approach used, not only across the railway industry but other industries as well. There is an initiative currently, with the involvement of industry and Transport Canada, in further refining this process to take it to the next level.

As our presentation mentioned, to our best knowledge we are the only railway using this process for assessing safety culture. It has certainly given us direction in terms of where to focus our efforts, and training excellence was a good example of that. Certainly we aim to pursue our continuous improvement of that and to work with different stakeholders and industries in that regard.

Senator Mitchell: It might be that this is not something you would want to release, but I will ask in any event. What you are talking about is very powerful. It would be interesting to see if there is a model or document that outlines the way in which you audit and reinforce your safety culture. Is there a place where that is laid out that we could see?

Mr. Berrada: Certainly. We have provided those documents to Transport Canada, and they have included them on their website, in the Safety Management Systems Best Practices guide. It is one of the annexes that is available to other railways, industries and the public. The process for measuring safety culture is outlined in there.

Senator Mitchell: Great. There is a question on the issue of dangerous goods: some hydrocarbons might be and some might not. Could you give us an example of each and why, perhaps, some products that people might think are dangerous are not considered, under that categorization, to be dangerous?

Mr. Berrada: There are different types of petroleum products that are being transported by CN. As I said earlier, we have been hauling different types for decades. With respect to the crude oils, there is a variety of types, including light crudes, heavy crudes, bitumen and the dilbits, which are a mix of diluent as well as bitumen. Each of these products has different viscosities and chemical contents, one of them being the amount of sulphur in there.

The great majority of these crude oils are transported under what we call a UN 1267 placarding, which falls under our emergency response plan. We would certainly respond to this type of product as we would to other dangerous goods.

In essence, there are different efforts right now at the TDG group of Transport Canada to try to get more resolution between the type of products and those that have more sulphur so that those may become what we call ERAP-able, requiring a formal emergency response plan from the suppliers as well as the railways, but this is something in the works right now.

The Chair: Thank you. We will be a little tight on time because everyone wants to ask a question. I will have to run the clock a little closer. Gentlemen, is it okay if you stay a few minutes past our normal time of nine o'clock?

Mr. Berrada: Yes.

Senator Lang: I have two questions and I will be very brief.

First, could you perhaps outline for us, with respect to your relationships with the various regulatory bodies in the provinces if there is a spill, exactly what responsibility your organization takes on, versus the federal government and the province, if that were to happen?

My second question is a broader one. As you know, there has been ongoing debate with respect to whether pipelines should even be built in some cases. If the decision were made that there was not going to be a pipeline, say, for example, to the West Coast, is your organization able to transport all the petroleum resources that could be sold vis-à- vis the West Coast? I am thinking primarily of Kitimat or even Prince Rupert. If you are capable of carrying that estimated volume, can you do it safely?

Those are my two questions, thank you.

Mr. Berrada: With respect to the emergency response and our involvement with both federal and provincial agencies, this is something we have been, as I said earlier, quite active in, in working with them. Our relationship with Transport Canada, as well as the TDG group and the provincial agencies, is very positive. They are aware of our emergency response plan capabilities and support them.

In the event of an incident, we establish what we call an incident command process, which involves all the stakeholders, not only the railway and the federal, municipal and provincial agencies, but also local fire chiefs and so on, where they all get together in terms of understanding what the plan is for the response and contributing to its progress.

With respect to pipeline and our capability to move product to the West Coast safely, the record speaks for itself. As we mentioned earlier, there have been studies that have reconciled the various efforts of looking at the safety of rail versus pipeline, and they both show that rail and pipeline are extremely safe and basically risk-equivalent. We can provide those studies to you.

Our projected volumes for crude oil are basically doubling this year from 30,000 carloads in 2012 to about 60,000 carloads in 2013. We have the capability to go beyond that.

To answer your specific question, we would have to understand exactly the volumes that we are talking about moving to Kitimat, to ensure that we build them into our forecasting to provide you with a definitive answer.

Mr. Farkouh: To add a bit to that, I do not know if we are in a position to really say whether or not a pipeline should be built. What is important is that we respond to the needs of our customers and provide our network to reach those markets that they so desire.

Mr. Berrada made mention that there will be an increase with regard to carloading of crude oil in this calendar year. In terms of how market conditions go, and if there is a pipeline or not would there be additional carloads, whatever the case may be, if we undertake any endeavour of additional traffic, the safe transportation of these goods is always kept in mind. If there is additional infrastructure required, or additional service required, it is all done under the same standard. We must emphasize that, so there is no intention of changing our model in terms of safety. If we do change it, it will be to enhance some areas, as we talked about, continuous improvement with regard to safety. Hopefully, that answers your concern.

The Chair: Thank you. We will have to tighten up the answers a little bit, if we could. We want to get the information, but I am going to be tight on time.

Senator Ringuette: I drive constantly between Ottawa and New Brunswick. In the last 10 years, I have observed a lot of what is going on along the road. I have noticed more activity with regard to your rail grinder. I am assuming three possible scenarios: first, heavier and more frequent weight on the system; second, there is certainly a weather impact on the rails; and, third, I am wondering if it is because you have changed your rail replacement plan. Which one is accurate, or are all three accurate with regard to the increased use of the rail grinder?

Mr. Berrada: Rail grinding is an important activity that allows us to mitigate risk in terms of potential rail failures and also to extend the life of the rail and the wheels. By grinding rail, we eliminate some surface defects that could potentially propagate into cracks. This is an activity we have been using actively and it has been growing. Like any track, we look at the gross tonne miles that we haul. We look at this risk as well in terms of the types of products hauled, and we make a determination as to how many rail inspections we do on an ultrasonic rail basis. We also make a determination based on the age of the rail and those two other factors as to how much rail grinding we do. This is an activity that is reassessed every year and is fine-tuned in response to those three factors, but the key principle is that it is used to reduce risk and extend the life of the rail.

Senator Ringuette: In the last five years have you reduced the rail replacement needs? This is very important with regard to the safety of rail transportation. In the last five years, have you reduced rail replacement?

Mr. Farkouh: In our presentation, we talked about the investment we are making. In the past five years, we have invested over $8 billion. This year, we will be at $2 billion of investment in our network, of which $1.1 billion is the regular maintenance, which would include replacement of rail, replacement of ties and the infrastructure related to the day-to-day operation of our company.

With regard to slowing down or ceasing in terms of rail replacement, that has not been the case. In fact, as each year goes, we are very aggressive in terms of ensuring we are maintaining that level of activity on the upkeep of the railroad and our investments have shown that over the past years.

Senator Massicotte: As you answered Senator Lang, you said multiple studies indicate that the risk scenario for pipelines and rail is basically the same. I think on May 17 you probably saw the article by Shawn McCarthy in The Globe and Mail whereby our Prime Minister, Mr. Harper, basically said that the pipeline poses less environmental risk than rail in moving crude. Per that article, the U.S. Department of Transportation confirms the same.

Are those statements by the U.S. Department of Transportation and Mr. Harper accurate? If they are, how does that align with your statement that the safety risk is largely the same?

Mr. Berrada: Regarding the challenges out there, as we have mentioned earlier, there have been a number of studies. The one most often quoted is called the Manhattan study, which showed rail to be higher in terms of risk than pipeline.

Having said that, there were two significant shortfalls in that study. One of them is that they established a threshold of five gallons for pipelines but no threshold at all in terms of measuring spills for rail, so they significantly increased the number of spills of rail versus pipeline because of that.

The other area was that they underestimated the volume for rail transported by a factor of three. The most recent analysis we have, which we can share with you, does a historical study between rail and pipeline looking at the frequency and volume of spills, and brings those two into something called the spill rate per billion gallon miles transported or billion tonne miles transported. It shows both of them to be extremely safe and actually shows rail to be slightly better than pipeline.

Again, different studies may show different things depending on the thresholds they use and the time periods assessed. This is why we are confident that both are extremely safe and basically equivalent.

Senator Massicotte: You are saying that our Prime Minister and the U.S. Department of Transportation are using the wrong studies?

Mr. Berrada: The one we are referring to, sir, was issued in the last week. I do not know which one they referred to, but we can certainly provide you with the one made available to us.

Senator Massicotte: In the same article, Michael Bourque, who is president of the Railway Association of Canada, says that rail is 2.7 times more energy efficient per kilometre travelled than pipeline. For the sake of our audience, could you explain how that would have been calculated? How could he say that when our Prime Minister and the U.S. department says the opposite?

Mr. Berrada: The answer is that greenhouse gas emissions depend on a number of factors, probably the most significant being the type of product being hauled. A good example is the bitumen that would require approximately 30 per cent value in pipeline. There are greenhouse gas emissions in getting the diluent from its origin to the point that it is going to be mixed with the bitumen, and then there is the cost of moving that much more volume in pipeline.

Specific examples like that would certainly favour rail, but when you look at the broad spectrum of products that are being transported, we can say three things. First, rail, and particularly CN, has made great efforts in reducing greenhouse gas emissions and is 15 per cent more efficient than the average railroad. We are four to five times more efficient in terms of greenhouse gas emissions as compared to trucking, and versus pipeline it is basically equivalent for the spectrum of products being transported. However, you will find some areas where pipeline may have an advantage and other areas where rail will have an advantage.

Senator MacDonald: I have a couple of questions on liabilities insurance. Your network runs coast to coast in Canada and to the Gulf Coast in the U.S. Can you give us a comparison of liabilities you face in shipping hydrocarbons, particularly dangerous hydrocarbons, through Canada and the U.S? Also, can you give us an indication of the comparative insurance costs for companies that are shipping goods of this nature across Canada or through the U.S?

Mr. Berrada: We do have insurance with an amount for which we cover our own costs. We can provide you with more details. The insurance company we use provides us coverage across Canada as well as the U.S.

Unfortunately, we do not have the level of expertise at this point to give you a specific answer to your question, but we can certainly provide you more detailed answers to that. The overarching theme is that we do have liability insurance and there is a deductible from which point we cover ourselves and beyond which the insurance company will cover us.

Senator MacDonald: I take it that when hydrocarbons, and particularly what are considered dangerous hydrocarbons, are shipped, the insurance is all covered by CN and not by the company that is shipping the good?

Mr. Berrada: We have responsibilities as a transporter. As an example, the response to a potential spill for which we would be responsible to cover the cost, including any potential cleanup and environmental mitigation, we do cover. We are self-insured up to a certain level, and beyond that level we have an insurance company that protects us.

Senator MacDonald: I would like to see more of a breakdown on the liabilities and a comparison of the liabilities. My understanding is that the liabilities in the U.S. are much greater than the liabilities in Canada; is that correct?

Mr. Berrada: The general answer would be yes, but we would have to get back to you with more details on the specifics.

Senator Wallace: Gentlemen, whether the movement of the petroleum is by rail or by tanker, if an incident occurs, the timeliness of the response will, to a large extent, determine the effectiveness of any recovery. We have heard evidence from tanker companies that they have a network of spill response organizations. They pre-position spill response equipment so that, if an incident occurs, a quick response can occur.

How does your experience compare with that? What do you do in the rail business to ensure that, where rail passes sensitive areas, particularly waterways, an effective and quick response can take place?

Mr. Berrada: As mentioned earlier, we have an emergency response plan that continues to be enhanced on the opportunities and lessons learned. We have a network of dangerous goods officers. That is summarized on slide 18 in terms of system protection with 50 dangerous goods responders that are decentralized across our system. We have about 21 environmental officers to expedite response as well. We are supported by shippers that have emergency response teams and contractors.

As mentioned earlier, we have been working with not only contractors but also agencies to identify sensitive areas, and we have a number of caches with spill kits near sensitive areas. A number of efforts have been mobilized over the last several years to ensure not only the expeditiousness of the response but also its effectiveness, with the right equipment being positioned in the right places depending on the risk level.

Senator Wallace: In terms of prioritizing those sensitive areas, we have heard of situations where rail cars have caused petroleum to go into major waterways. Would you prioritize waterways over which CN rail tracks would pass and ensure that there is spill response capability in reasonably close proximity to those sensitive areas?

Mr. Berrada: Absolutely. A risk assessment is done in terms of the different elements that would increase environmental exposure. Waterways are obviously a very significant one, and we would mobilize our efforts, including availability of spill kits, booms and contractors, to a greater proportion in those areas.

Senator Seidman: Most of my questions have already been answered about liabilities and sustainability. To follow up on Senator Wallace's last question, does the rail industry have industry cooperatives or third-party organizations, similar to what we heard about from the marine and the pipeline industry, which would assist in a spill response?

Mr. Berrada: Yes, absolutely. Again, slide 18 mentions that in addition to working with shippers we work with specialized emergency response contractors. We also work with other railroads in certain areas to share resources so that we augment the effectiveness of our response. We use a number of avenues to bring a collaborative effort to the response to speed up the response and make it more effective.

Senator Seidman: If a spill occurs in an isolated area, you might have shared resources with a cooperative in the area or another railway? Could you elaborate on that, please?

Mr. Farkouh: Our outreach approach includes a network of contractors with which we interact. We strategically position our equipment in locations that could be sensitive areas for us. We take into consideration areas that are potentially less accessible. We secure mobility for us to get to these locations in an expeditious fashion. We work with the other railroads. We also work with communities. We have a large network of first responders that we have trained in communities throughout Canada. Most important, we have a first line of defence. We have trained a vast amount of people in our network to respond in the event of an immediate need, and we draw in all resources necessary in the area that we have identified in these locations.

Senator Seidman: I want to ask one question about the liability to clarify something.

When Transport Canada officials appeared here before our committee in late March, they discussed liability limits for marine oil spills but they were not able to provide information on a similar standard or rail accidents. In fact, the marine liability limits are being reviewed.

Do you have anything to add to help us understand the liability issues; that is, if there is a similar review in place or similar standards as there are for marine spills?

Mr. Berrada: Further to the previous question, as we said, we will get back to you with more details. Again, the general principle is that we do have liability insurance and that protects us beyond the amount for which we cover ourselves.

With respect to movement of crude oil, like any other product, we would ensure that there is adequate coverage in terms of the liabilities and response cost that would be associated to it, either through ourselves in terms of self- insurance, below that threshold or above that through which we would engage our insurance company.

Senator Seidman: These limits are being reviewed?

Mr. Berrada: I am sorry; I do not follow ``being reviewed.'' We have been insured for as long as I can remember and the insurance companies have covered us. There have been different insurance companies over the years but we have always been insured and, again, beyond the thresholds for which we self-insure.

Senator Patterson: Gentlemen, you described your four categories of customers and shipments. Let us start off with CN. What percentage of our total rail traffic is for hydrocarbon commodities? Has that percentage changed in recent years?

Mr. Berrada: Yes; our petroleum products represent approximately 17 per cent of our total movement of goods. Crude oils, as we know, have increased particularly in the last two years and we expect it to double in 2013. We can get back to you with the specific amount, if you wish, of what crude oil represents within that 17 per cent portfolio of petroleum products.

Senator Patterson: Thank you.

Senator Unger: My question is supplementary to the previous question. On slide 24 you state that you have the scope to double your business in 2013. When you say you have the scope, how would you do that?

Second, given that there are only two class 1 railways in Canada to service thousands of shippers, is this doubling of your business to service existing suppliers to provide better service to them or is it for anticipated new business?

Mr. Berrada: Clearly, one of the key challenges is the availability of rail cars. This is something that is typically owned by either the customer or the leasing companies. This is an area that is being significantly ramped up, has been and will continue to be over the next couple of years to respond to the need.

In terms of network capacity, this is another factor for which we continuously assess our utilization rates versus our capacities and upgrade them. As an example, this year we are investing in our western region to increase capacity to prepare for the future. We work with existing customers; we work with new customers, to see what supply chain needs would be required to service them; and we work collaboratively with them to implement those resources and facilities that are required.

Mr. Farkouh: In the current state we are seeing increases with some existing customers, but we are also seeing additional customers expressing an interest for using rail.

Senator Unger: For example, you will be adding many new rail cars, and you said you lease rail cars from other people. Did I understand that correctly?

Mr. Berrada: To clarify, CN typically does not own the tank cars that would haul the crude oil. These would be billed according to North American standard. They would be either purchased by the customer with whom we do business — and our rate agreements take that into consideration — or they would be leased, typically by the customer, again building into the rate agreements that we have with them.

Senator Unger: What about non-petroleum-related customers, for example, lumber? Do they own their own cars?

Mr. Berrada: Typically we will see a mix of cars running on any given day on any given line on the railroad, some of which will be owned by CN; others will be owned by customers or leasing companies. As I said, typically the tank cars would not be owned by the railways. The other car types for lumber, as you said, would be what we call centre beam cars, or box cars. They could be owned by the railways but could also be leased as well.

Senator Wallace: Following up on Senator Unger's comment, as you said, CN does not own all the tank cars that pass over its tracks; many of them are leased and licensed.

What steps does CN take to ensure those rail cars meet the proper safety standard? Is it simply up to the owner of the tank cars to do that? Where does CN come into that?

Mr. Farkouh: In regard to any railroad piece of equipment rolling on our network, we have an obligation to inspect that equipment at various locations throughout our network. We have staffing in various locations right across this country where we have designed and scheduled areas where we must perform safety inspections on the rail cars; that is, when they are stationary in the yards. We also made mention about wayside detection that also monitors wheels and bearings of cars. A safety inspection is also done on them.

Regardless of the markings of a car on that piece of equipment, we still have an obligation and a vested interest to ensure that it meets all of our standards and those of Transport Canada in terms of the safety of that asset.

Senator Wallace: You conduct these safety inspections of these third party tank cars. Are the details of that inspection, the frequency and the details that you examine, something you determine through your own policies as to what you will do or are you regulated? Do federal regulations or provincial regulations determine the extent of these safety inspections?

Mr. Berrada: The answer is both of the above. Clearly, we comply with all regulations but also exceed them, particularly when it comes to leveraging technology with our wayside inspection systems. We have in our toolkit, annex 2 that we provided, a number of technologies that are used that inspect for potential defects to ensure the safety of that equipment. Most of those are not even regulated, yet we have invested in them.

To add to that, there are North American standards for the construction of rail cars in the Association of American Railroad specifications and Department of Transport specifications to which rail cars are built to and all of our inspections, both visual as well as technological, assure the safety of that equipment.

Senator Wallace: That is the building standard. What about the maintenance standard?

Do regulations establish the parameters for that maintenance schedule for each of those tank cars, or is that something you determine through policy of CN?

Mr. Farkouh: With regard to the daily maintenance, there are Transport Canada regulations with regard to allowances, and it is imperative that we follow them. In some instances, we actually exceed them. We have instances where we will actually exceed levels of defects on wheels, where we take a position that we will change them even earlier.

To say that we formulate our own policy is not necessarily the situation. There is a base requirement with regard to the maintenance standards and acceptabilities, whether it be for the rail or the railcar, regardless of the markings of that car. For us a car is a car is a car in terms of the safety element. We do not make a distinction between them. They are treated equally. There are base requirements throughout Canada for the federally regulated railroads in terms of what the maintenance requirements are for those pieces of rail equipment.

The Chair: Thank you very much, gentlemen, for taking the time to appear before us. I know you are both very busy. We appreciate it very much. There were some good questions and answers.

You commented on some information that you will provide to the clerk so that all members will get a copy of it. I would ask you also if you could provide us with those safety studies — rail versus pipeline — that you spoke about. If we could get those studies, however many there are, we would appreciate those as well.

Thank you very much, Mr. Farkouh and Mr. Berrada.

Mr. Berrada: Thank you very much.

Mr. Farkouh: Thank you very much, Mr. Chair.

(The committee continued in camera.)